Fitch Ratings Affirms Southern Company & Subsidiaries.

Business Editors

CHICAGO--(BUSINESS WIRE)--Dec. 6, 2002

Fitch Ratings has affirmed the credit ratings of Southern Company (Southern) and its operating subsidiaries Alabama Power Company (APC), Georgia Power Company (GPC), Gulf Power Company (Gulf) and Mississippi Power Company (MPC). The ratings for Southern's financing vehicles, Southern Company Capital Funding Inc., Southern Company Funding Corp and Southern Company Capital Trust VI, have also been affirmed by Fitch. The Rating Outlook for all entities is Stable. A full description of the ratings is shown below.

The rating affirmations are based on a comprehensive review of the Southern group's financial results and updated business plan. Southern Company is a parent holding company whose credit is derived from the access to stable upstream dividends from its regulated electric utilities and the strong credit quality and relatively low business risk of those subsidiaries. All of the regulated operating subsidiaries are integrated utilities that conduct business under cost-of-service tariff regulation. The utility operating subsidiaries benefit from constructive regulatory environments, solid competitive positions and low retail and wholesale tariffs.

The primary credit concern regarding Southern relate to the capital needs of a non-regulated subsidiary that develops and operates power plants and sells power predominantly under contract. While Southern also faces some potential contingent liability relating to its former subsidiary Mirant Corporation, this is not considered to be a major concern. Rating issues facing the subsidiaries include exposure to a weaker economy, the potential exposure to additional environmental compliance costs given a relatively high reliance on coal for fuel, and operating risks associated with its nuclear plant fleet. Concerns about future environmental compliance costs are mitigated in the case of MPC and Gulf by environmental recovery clauses that permit the utilities to recoup environmental investments and costs, APC by its rate stabilization equalization plan which allows limited periodic adjustments to rates for actual costs, and at GPC and Savannah Electric and Power by the use of future test periods in regulatory proceedings.

During 2002, Southern has posted solid financial performance due to warm summer weather, sustained customer growth and the overall impact of rate increases in Alabama, Florida and Mississippi. Although the economy in the Southeast has stabilized, recovery in the manufacturing sector is not expected to rebound until the second half of 2003. Credit protection measures for the Southern group remain consistent with the 'A' rating category, with consolidated EBIT-to-interest at 4.1 times (x) and consolidated EBITDA-to-interest at 5.8x for the twelve months ended Sept. 30, 2002. Additionally, Southern has strong liquidity, with $1.235 billion in available credit facilities, extendible commercial notes, and uncommitted lines at the Holding Company. As of the third quarter 2002, approximately $450 million of holding company commercial paper was outstanding. The operating companies maintain separate credit facilities, extendible commercial notes and uncommitted lines to meet their liquidity needs.

Fitch's rating analysis also takes into consideration Southern's plan to expand its non-utility wholesale generation business in the southeastern U.S. by means of its subsidiary, Southern Power Company (SPC, senior unsecured debt rated 'BBB+' by Fitch). SPC plans to complete construction of more than 6,000 mw of new capacity by 2005. SPC is not directly affected by the weak wholesale power market and very low spark spreads in the cash market, since more than 90% of SPC's expected net revenues are under long-term contracts through 2009. The majority of SPC's contracts are with the Southern regulated operating companies, and most of the balance is with counterparties of good credit quality. In large part, the contracts include capacity payments and pricing mechanisms that eliminate volume risk and transfer fuel price risk to the buyer. Southern has invested $728 million of equity and $212 million of holding company intercompany loans as of September 2002, as well as provided completion guarantees for all plants under construction through 2003. Fitch's rating assumes that Southern will not make additional equity infusions beyond forecasted levels and further assumes that Southern's exposure to payment under completion guarantees will be minimal.

On Nov. 12, Southern received a subpoena to provide information to a grand jury in the Northern District of California (San Francisco) related to its former subsidiary, Mirant Corporation (MIR). MIR participated in energy marketing and trading in California during the period relevant to the subpoena, as well as during part of the period of investigation MIR was owned by Southern. MIR was fully spun off from Southern in April 2001. At the time of the spin-off, MIR indemnified Southern for contingent liabilities relating to any claims or liabilities due to the subsidiary during Southern's ownership. However, in the event of the bankruptcy or insolvency of MIR, such indemnities would not be meaningful. The potential financial impact on Southern from this investigation, if any, is uncertain at this time.

Southern faces some exposure to Dynegy Inc. (DYN, senior unsecured rated 'B', Rating Watch Negative by Fitch) through capacity sale contracts with SPC and MPC. Minimum capacity revenues under these contracts average approximately $13 million annually through May 2005 for SPC and $21 million annually through May 2011 for MPC. DYN has provided letters of credit, expiring in February 2003, totaling $20 million to SPC and $26 million to MPC, which can be drawn if they are not replaced by acceptable security prior to expiration or a DYN default. DYN has also provided a $50 million letter of credit expiring in April 2003 for a SPC capacity sales contract that begins in 2005.

Southern is a diversified energy holding company whose core business is its five regulated, wholly owned subsidiaries, which provide retail electric service to more than 4.2 million customers in portions of Alabama, Georgia, Florida and Mississippi. Unregulated operations include competitive generation, energy-related products and services, telecommunications services and leasing and synfuels.

Ratings affirmed:

Southern Company

-- Senior unsecured debt 'A';

-- Commercial paper 'F1'.

Southern Company Funding Corp.

-- Commercial paper 'F1'.

Southern Company Capital Funding

-- Senior unsecured debt 'A'.

Southern Company Capital Trust VI

-- Trust preferred securities 'A-'.

Alabama Power Company

-- Senior secured debt 'A+';

-- Senior unsecured debt 'A';

-- Preferred/trust preferred securities 'A-';

-- Commercial paper 'F1'.

Georgia Power Company

-- Senior unsecured debt 'A+';

-- Preferred/trust preferred securities 'A'.

Gulf Power Company

-- Senior secured debt 'A+';

-- Senior unsecured debt 'A';

-- Preferred/trust preferred securities 'A-';

-- Subordinate debt 'A-';

-- Variable-rate PCRBs 'F1'.

Mississippi Power Company

-- Senior secured debt 'AA-';

-- Senior unsecured debt 'A+'

-- Preferred/trust preferred securities 'A'.